Google has a way of reporting paid links now. They say buying links is an attempt to game their pagerank algorithm and they want you to report sites that sell or buy paid links.
They agree links are a good way of advertising and are not against it, but they want those that display text link to put the rel="nofollow" attribute in the links. Using the "nofollow" attribute will means that GoogleBot will not follow the link, thus will not use it when computing the page rank for the destination url.
I think the only reason you would want text links on a site is because of that, to get a higher page rank and relevance, so by requiring webmasters to use nofollow, they are just killing text link advertising networks like Text Link Ads that work especially because they sell link ads that are followed and transfer page rank.
Google says this violates their guidelines. How can you violate a guideline, you can violate a rule, but if it's just a guideline that means you shouldn't be penalized for not following it.
And there are other problems with this policy. Links are supposed to mean that the owner of the site thinks that some other site is relevant, and that is why he links to it. Paid or not it can be relevant. Page rank is about relevancy, right ?
If I want my site in google search ads, I pay google for it, does that mean my ads are not relevant ? Google says it shows contextual ads because they are relevant to the content the user is seeing. It seems to me, it's relevant only if you pay google for the ad.
And here's another problem: How can google tell if the person that reports such violation does not lie? If I want to get my competitor out of google index or set him on a lower page rank I could just report him for buying text links. A lot of web sites have text links pointing to them, paid or not. It's hard to tell. Some disclose them, other's don't. This may influence the ones that do disclose them, not to disclose the links anymore. Why add to the risk of being reported?